The cautious optimist

At this year’s Russian Business Week in London, Troika Dialog chairman Ruben Vardanian talked about problems in the economy, modernisation and attracting the best people.

You are always optimistic about the Russian economy. Is this still the case?

I’m optimistic in the short term. One year from now, we expect to see inflation and unemployment down, currency stable and growth of 5pc. In five years’ time, however, we will face increasing challenges. There will be a shortage of people; with more people reaching pension age, the pension system will be under strain; gas prices will fall if Shell continues to develop its current oil fields; and natural resources will become less crucial.

What are your views on president Medvedev’s modernisation of the economy?

My major concern regarding Russia is that we are losing time to change, to become more ambitious, more open-minded, more creative, willing to take risk and be competitive on a worldwide scale. In the coming years, the main competitive advantage will not be natural resources but people. The country that provides people with the best living conditions, education system and benefits will win. In the 21st century, medicine, education, the creative and technological sectors will be the most important. If we want to keep our people and attract the best talent to compete on a global level, we are all responsible for creating such conditions and it is pointless to lay this responsibility solely on the government. The modernisation programme has been initiated by the government, but its success will largely depend on whether it can be managed efficiently.

Do you find that the trend towards nationalisation of more and more companies in Russia is hurting the economy?

I think it is a natural evolution process that has been experienced by several countries. As Troika Dialog points out in its monthly forecast, since 2004 the economic diversification has been primarily state-driven, with the state supporting a number of “national champions” which didn’t deliver impressive results. I do not doubt that in the next three years we will see parts of state companies privatised.

Any chances for mid-sized investors to participate in this big game?

Russian capital markets are continuing to develop and have been subject to significant volatility. If you compare the market in Russia and China in 2000, 10 years on the return on securities in Russia is around 700pc and in China 170pc. Unfortunately, while the Chinese market grew steadily without any stress factors, in Russia it has been going up and down. Midsized investors really have to be patient and need to adopt a long-term investment horizon.

Are you referring to the proclaimed policy of the Kremlin to limit the number of short-term and speculative investors?

Hedge funds are responsible for creating turnover and volatility and the current community is clearly dominated by short-term investors. The main driver of market growth should come from local investments which are still quite small.

Do you think it is possible to be successful in such a corrupt market? Particularly considering the recent example of IKEA.

Judging from our experience in helping different companies invest in Russia, margins are higher here compared to China. More than 80pc of our beer industry is controlled by foreigners. The banking industry does not face any restrictions either. These industries are smaller than our natural resources industries and that is why people talk less about them, but there are plenty of success stories here that highlight the contribution of foreign investment.

The perception of many foreign businessmen is that the rules of the game are more clear in China than in Russia.

This is the difference. The problem in Russia is that you have so many different interest groups and the rules of the game are less clear. So it is not really a question of a corrupted vs non-corrupted state, but rather making the rules clear.